Yahoo Finance Cosan SA Stock Is Estimated To Be Modestly Undervalued
- By GF Value
The stock of Cosan SA (NYSE:CSAN, 30-year Financials) gives every indication of being modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $16.87 per share and the market cap of $7.9 billion, Cosan SA stock shows every sign of being modestly undervalued. GF Value for Cosan SA is shown in the chart below.
Because Cosan SA is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 23.3% over the past five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Cosan SA has a cash-to-debt ratio of 0.30, which is in the middle range of the companies in Oil & Gas industry. The overall financial strength of Cosan SA is 4 out of 10, which indicates that the financial strength of Cosan SA is poor. This is the debt and cash of Cosan SA over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Cosan SA has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $2.7 billion and earnings of $0.567 a share. Its operating margin of 13.88% better than 76% of the companies in Oil & Gas industry. Overall, GuruFocus ranks Cosan SA's profitability as fair. This is the revenue and net income of Cosan SA over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Cosan SA is 23.3%, which ranks better than 88% of the companies in Oil & Gas industry. The 3-year average EBITDA growth is -4.4%, which ranks in the middle range of the companies in Oil & Gas industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Cosan SA's return on invested capital is 5.18, and its cost of capital is 7.27. The historical ROIC vs WACC comparison of Cosan SA is shown below:
Overall, The stock of Cosan SA (NYSE:CSAN, 30-year Financials) is estimated to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Oil & Gas industry. To learn more about Cosan SA stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
